Investing Lessons: What I Learned in Two Years of Investing
For anyone who wants to start investing in stocks
Over the past two years, I’ve dedicated my time to working, reading, and studying the world of investing. I’ve devoured multiple books, joined investment communities, and kept up with the latest investment news. Throughout this journey, I’ve encountered both positive and negative lessons. Some of these experiences shaped my investment mindset today, while others served as cautionary tales.
Now, I’d like to share some of the key takeaways that I believe can benefit anyone navigating their investment journey.
For a deeper dive into some of the investment books I found helpful when starting, check out my previous post: Books to Get You Started with Investing in the Stock Market. These books offer foundational insights into stocks, investing concepts, and the mental models that guide successful investors.
Practice Makes Perfect
In the beginning, I faced numerous challenges. I struggled to connect the flood of information I encountered and often felt lost amid macroeconomic shifts. Through consistent learning and practice, I developed strategies that helped me stay on track.
Read More
Reading is the cornerstone of investment knowledge. While it may seem time-consuming, especially for those who aren’t avid readers, it’s crucial for gaining an edge. Understanding a company means diving deep into its business operations, products, management, and customers. There are many resources available, such as annual reports, online presentations, and industry news, which provide the necessary information.
Instead of starting with analyst reports, which can often be exaggerated, it’s better to rely on primary sources and engage in discussions with peers who share similar interests. Think of it as being a journalist: ask questions, dig deep, and keep probing until you have a clear picture of the company.
Connecting the Dots
Gathering information is only half the battle. You need to distinguish between what is useful and what is irrelevant. Look for key variables that drive the business’s profitability, growth, or potential turnaround.
For example, consider factors such as commodity prices or government regulations and how these influence the company’s performance. Cross-referencing your findings with historical data and industry trends can reveal patterns that help you predict future outcomes.
A fitting quote from legendary investor Li Lu encapsulates this mindset:
“The most important thing in our business is intellectual honesty… know what you know, know what you don’t know, know what you don’t have to know, and realize that there is always a possibility that ‘you don’t know that you don’t know.’”
— Li Lu, 2013
Build Conviction
Once you’ve gathered the information, it’s time to build your conviction. A company’s reports and presentations will always paint an optimistic picture — it’s their job to make themselves look good. It’s crucial to remain skeptical and compare the company to its peers to truly understand its value.
As Warren Buffett often says, you don’t need a multitude of good businesses to succeed; you just need to find a few exceptional ones. Once you identify a company that stands out among its competitors, you’ll need to assess its fair value, which is more nuanced than just looking at basic metrics like Price-to-Earnings (P/E) or Price-to-Book (P/B).
Think long-term — will this company still be thriving in 10 or 20 years? Will it continue to generate cash and grow? Are you prepared to wait patiently for it to realize its full potential?
Patience
Patience is, by far, the most challenging aspect of investing. In an age where stock prices are constantly fluctuating and notifications about market movements are endless, resisting the temptation to act hastily can be difficult.
Even with notifications turned off, the urge to check stock prices persists. I’ve learned to embrace market fluctuations without letting them drive my decisions. Whether a stock drops by 30% or skyrockets by 70%, I always return to my research to ensure my decisions align with my long-term strategy.
The goal is to avoid making rash decisions driven by emotions, often referred to as Fear of Missing Out (FOMO). Instead, I rely on a checklist and cross-check my journal to ensure the fundamentals remain intact.
Best Practices
After conducting thorough research — gathering information, connecting the dots, building conviction, and practicing patience — it’s time to focus on the best strategies for growing your portfolio. Here are two key principles that I’ve learned:
Concentrated Portfolio
While diversification is often touted as a cornerstone of risk management, it can sometimes lead to what’s called “diworsification.” This occurs when investors spread their capital too thin, diluting the potential for significant returns. If you’re finding that your returns are underwhelming, a more concentrated portfolio could be the answer.
For larger sums of money, diversification might make sense because buying large volumes of a single stock can artificially inflate the price, pushing you into less desirable averages. However, for most individual investors, over-diversifying can signal a lack of confidence in their stock-picking abilities.
Why invest in multiple stocks to mitigate risk if you’ve done your due diligence and truly believe in the business? A concentrated portfolio is a vote of confidence in your research and your understanding of the business. When you find the best stock, one that stands out among its peers, there’s no need to dilute your holdings with others that don’t measure up.
However, always prepare for the possibility of errors in your thesis or research. Building a margin of safety is crucial. This acts as a buffer in case your analysis turns out to be wrong, and it’s an essential part of intelligent investing.
As Li Lu puts it:
“I think you want to avoid wrong decisions as much or more than you want to get it approximately right. If you avoid the wrong decisions, you’ll probably come out okay over time.” — Li Lu
The Fat Pitch
Another widely discussed strategy is Dollar Cost Averaging (DCA), which involves regularly investing a fixed amount into a stock over time. While this can work for people who don’t have the time or inclination to research deeply, it may not yield optimal results for those who actively analyze stocks.
DCA doesn’t guarantee that the stock price will remain consistent, and timing the market perfectly is nearly impossible. Instead, for those who’ve done the homework, it’s better to wait for a “fat pitch.” This refers to a clear investment opportunity where the odds are heavily in your favor — an undervalued stock that aligns with your research.
Don’t be afraid of missing the absolute bottom. Even if the price drops 20–30%, it could be an opportunity to buy more, assuming your investment thesis still holds. The key is recognizing when the market is offering you a solid chance to invest.
If the stock price rises and no new opportunities are apparent, sit on your cash and wait. Patience is just as valuable as the research you’ve conducted. There’s no need to rush into a suboptimal investment when a better opportunity could be just around the corner.
Treat It Like a Lover, Not a Wife
Investing can be an emotional journey, especially when a stock you’ve held for a while undergoes significant changes. Sometimes it rises, sometimes it falls, and occasionally, despite your attachment, it’s time to let go.
The lesson? Sell and don’t look back. I once held a stock in a cigarette company and sold it at what I believed was a fair price. But to my surprise, the stock kept climbing, eventually quadrupling its initial value. However, a few months later, it dropped back to the level where I had sold it.
This experience taught me that consistently timing the market is almost impossible. If anyone could do that repeatedly, they’d be set for life.
Therefore, treat your stocks like a lover; and appreciate them while they’re adding value, but don’t commit forever. Even with long-term investments, be prepared to walk away when the fundamentals change. Investing is about understanding when to hold on and when to cut ties, for the betterment of your portfolio.
Conclusion
Mastering these practices was a challenge at first, and it took me two years of dedicated effort to grasp and apply the skills I’ve shared. However, once you’ve worked through the process, it becomes much more intuitive, especially when analyzing companies within the same industry or business model.
By consistently doing your research, you’ll build a thorough understanding of each company’s strengths and weaknesses, pros and cons. This accumulated knowledge not only sharpens your decision-making but also shortens the time needed to assess new opportunities.
In the end, it’s all about doing the homework and waiting for the right “fat pitch.” Once you find it, keep learning and searching for the next one. The more you practice, the closer you’ll get to accumulating enough wealth to relax and enjoy life.
See you in the next post!